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Twenty-five of the European Union's 27 member states agreed
on Monday to a
fiscal governance pact that would cede much control of national budgets
to the European Commission.

The United Kingdom had already opted-out from the so-called "fiscal compact," which will require
countries to introduce balanced budget rules into their laws or constitutions.
The Czech Republic also said it would not sign the agreement.

The leaders also approved the early introduction
of the €500bn ($656bn) European Stability Mechanism (ESM). The fund is now set
for activation on July 1, one year before its original launch data. It is to
run parallel to its temporary predecessor, the European Financial Stability
Facility (EFSF) for one year.

The current rules limit the combined lending power
of the two funds to €500bn, but there is hope that it will be raised to €750bn.

Bloomberg
reports that European governments moved toward a confrontation over a
second rescue package for Greece, just as a dimming fiscal outlook in
Portugal opened a new front in the debt crisis.

Euro leaders left a Brussels summit late yesterday with no accord over how to
plug Greece’s widening budget hole and German Chancellor Angela Merkel voicing
frustration with the Athens government’s failure to carry out an economic
makeover.
“Greece’s debt sustainability is especially bad,” Merkel told reporters. “You
have to find a way through more action by the Greek government, more
contributions by private creditors, for example, in order to close this gap.”

Economic View: Fiscal Compact finalised, but little new on growth policies; Dermot O'Leary,
chief economist, at Goodbody comments -- "Unlike the previous two EU summits, yesterday’s meeting of EU leaders was a
rather tame affair, with no frantic late night ultimatums or arguments. It is no
coincidence that while market pressure was intense prior to the final two
meetings of 2011, the market backdrop to the latest meeting was much more
relaxed, helped by the actions of the ECB over the past two months. The lack of
urgency is also picked up in the statement coming from the meeting.

Under the
catchy title 'Towards growth-friendly consolidation and job-friendly growth,'
the statement tries to deflect from what are clearly policies aimed at fiscal
consolidation in the euro-zone by talking about efforts to stimulate the
economy. Importantly though, there is little in the way of concrete proposals
and nothing in the way of additional resources. The proposals come in three
areas. Firstly, stimulating employment, particularly for the young, where
unemployment remains exceptionally high, through an increase in apprenticeship
schemes for example and redirecting some EU financial resources towards that
goal. Secondly, it aims to complete the single market, while, thirdly, it aims
to boost financing to the European economy, particularly for SMEs. This is to
prevent problems that are likely to stem from significant deleveraging in the
banking system across Europe. All of these proposals are laudable, but until
specifics are available, they simply look more like political rhetoric than
anything concrete.

A separate statement was also released last night by the euro-zone members. As
expected, the Fiscal Compact was finalised and will be signed in March. The ESM,
the new rescue facility, will become fully operational in July (In Ireland, the
Attorney General will give an opinion on whether a referendum will be required
within two weeks). Importantly, the pledge to provide support to countries in a
programme until they have regained market access was reaffirmed. Two key issues
remain, however. Firstly, the December pledge that EFSF “leveraging will be
rapidly deployed” has not come about, and there are still arguments over whether
the resources of the EFSF will be combined with the ESM when that comes into
force. Secondly, although it is noted that progress is being made on Greek PSI
negotiations and a second aid package, it is painfully slow and the March 20th
bond redemption looms large.

We would expect these issues to be resolved and also think that progress has
been made in the euro-zone crisis in the past two months, but only due to the
actions of the ECB. Meanwhile, European leaders continue to persist with
policies that will lead to, at the very least, slow growth in the euro-zone,
thus making it more difficult for countries in difficulty to engineer an
export-led recovery."

Stock prices fall as concern about Greek debt deal mounts: Conall Mac
Coille, chief economist at Davy, comments -- "Stock markets fell
yesterday (January 30th) as concern mounted that a new deal to write down the
value of Greek sovereign debt may not be found soon. The negotiations appear to
have progressed beyond agreement on the magnitude of private sector involvement,
although the package has yet to be finalised. However, talks have now stumbled
on the details surrounding a new Greek fiscal austerity package, with the
government balking at proposals for an EU budget commissioner with veto power
over national spending and taxation decisions.

Last night's news that 25 EU countries have agreed to tighten budgetary
rules so that members are required to balance national budgets over time is
unlikely to have a material impact on market sentiment. The treaty has still to
be implemented and does not change the stark reality of the enormous fiscal
adjustments already being implemented in Italy and Spain. Furthermore, the new
EU agreement comes at a time when the 'austerity' strategy is increasingly
questioned. If private sector investment fails to pick up in 2012 and 2013, as
spending and tax adjustments are being implemented, there are likely to be
growing calls for more activist fiscal measures sustained by loose monetary
policy.

The impact of the debt crisis on the European economy was underlined
yesterday by the 0.3% decline in Spanish GDP in Q4, following on from the news
that the UK economy contracted by 0.2% in the final quarter. The European
measures of consumer and business confidence for January, released later in the
day, showed some small improvement but remained very weak.

Concerns about the strength of the global economy were reinforced by news
that US consumer spending was flat in December as savings rose. Overnight, the
GfK measure of UK consumer confidence showed a small improvement but remains at
similar levels to those during the worst of the financial crisis in 2009. German
retail sales data released this morning for December showed a 1.4% monthly
decline following a 0.9% fall in November. So concern around the ability of the
consumer to sustain spending in the economy is likely to continue weighing on
market sentiment today."

Withdrawal From the Eurozone Is Dangerous Talk: Expert: Moorad Choudhry head of business treasury at the Royal Bank of Scotland, told CNBC, "people talk about an orderly withdrawal from the euro zone, no such think, you can have a withdrawal but the instant you announced it you'd have a bank run in that country and then of course that would have a knock on affect on the rest of the EU's banks":

The skyscrapers and
immaculate beaches of Singapore's seaport look out on one of the world’s largest
parking lots: mile after mile of empty cargo ships, as far as the eye can see.

Similar fleets bob at anchor,
with empty cargo holds, off the coasts of southeast Malaysia and Hong Kong. And
dozens of newly built ships float empty near the giant shipyards of South Korea
and China, their owners from all over the world reluctant to accept delivery
during one of the worst markets ever for the global shipping industry.

As recently as six weeks ago
large freighters that can carry bulk commodities like iron ore or grain were
fetching charter rates of $15,000 a day. Now, brokers and owners say, the going
rate is $6,000 a day. If any customers can even be found.

The margin
between the US benchmark WTI (West Texas Intermediate) used on the New York
Mercantile Exchange and Brent is over $11 - - The Globe and Mail says that for
the past 10 months, Canadian producers - - whose prices are tied to WTI - - have
been taking steep discounts for their oil compared with international crude
prices that are benchmarked against North Sea Brent, which can be shipped more
readily. In the past, WTI tended to trade at a small premium to Brent, because
it is easier to refine.

That spread
hit a peak of $28.08 (US) on Oct. 14, but has fallen dramatically since then.
After plans for more pipeline capacity at Cushing, Oklahoma, the differential
narrowed.